Financial Development In China Research Articles

Financial Functions and Financial Development in China: A Spatial Effect Analysis

ABSTRACTThis article aims to study the spatial effect that financial functions have on financial development in China. We use the 2005–2014 panel data for 31 Chinese provinces to construct three spatial panel models of different spatial weight matrixes. The empirical results indicate that there is a spatial competition effect on financial development. Most explanatory variables play positive roles in promoting the local financial development. Spatial spillover effects are not obvious and negative to financial depth. Spatial spillover effects are significantly positive in financial access. Spatial competition effects are observed in financial efficiency. Openness and economic development show spatial spillover effects, while human capital and government subsidies show noticeably spatial competition effects. These insights are valuable to financial department and policy makers.

The Impacts of Financial Development, Urbanization, and Globalization on Income Inequality: A Regression-based Decomposition Approach

This paper investigates the impacts of financial development, urbanization, and globalization on income inequality in China by applying a regression-based inequality decomposition approach to panel data on Chinese provinces. Provincial data on urbanization and globalization are combined with new data collected from a unique database of financial development in China compiled at the county level. Our findings suggest that financial development, urbanization, and globalization have a positive impact on income. However, our inequality decomposition suggests that financial development may be particularly important for promoting inclusive growth, since financial development not only stimulates economic growth but is also found to be a factor that reduces inequality.

Openness and Financial Development in China: The Political Economy of Financial Resources Distribution

ABSTRACTThis paper examines the impact of openness on financial development in China. We use two sets of indicators of financial development to distinguish size and efficiency for both bank and capital market sectors as aspects of financial development in 30 provinces of China over the period from 2000 to 2009. The empirical results suggest that trade and financial openness exert positive impact on financial efficiency but negative impact on the size of financial development for both the indirect and direct financial sectors. The results confirm a mismatch problem between the distribution in the types of trading companies and the allocation of financial resources in China.

Trade openness, financial openness, and financial development in China

This paper investigates the impact of trade and financial openness on financial development in China. We use three sets of indicators of financial development to distinguish size, efficiency and competition as aspects of financial development. The empirical results, using dynamic panel estimation techniques, suggest that both trade and financial openness are statistically significant determinants of financial efficiency and competition, but that openness has a negative impact on the size of financial development. Our results also suggest that the marginal effects of openness on financial efficiency and competition are positive for the most open provinces but negative for the least open regions, while the marginal effects of openness on the size of financial development are generally negative for most provinces in the sample. The results reflect a mismatch problem between the distribution in the types of trading companies and the distribution of financial resources, and also indicate that local incumbents may be strong impediments to financial development in China.

A Spatial Econometric Analysis on the Disparity of Regional Financial Development in China

A Spatial Econometric Analysis on the Disparity of Regional Financial Development in China

Long-run relationship between income inequality and financial development in China

This article aims at investigating the long-run relationship between financial development and income inequality in China using Autoregressive Distributed Lag (ARDL) model from 1978 to 2006. The results suggest that there exists a strong relationship between the Gini coefficient and financial development, and that financial development leads to a reduction in the income inequality.

The impact of growth, energy and financial development on the environment in China: A cointegration analysis

This article aims to investigate the impact of financial development, economic growth and energy consumption on environmental pollution in China from 1953 to 2006 using the Autoregressive Distributed Lag (ARDL) bounds testing procedure. The main objective is to examine the long run equilibrium relationship between financial development and environmental pollution. The results of the analysis reveal a negative sign for the coefficient of financial development, suggesting that financial development in China has not taken place at the expense of environmental pollution. On the contrary, it is found that financial development has led to a decrease in environmental pollution. It is concluded that carbon emissions are mainly determined by income, energy consumption and trade openness in the long run. Moreover, the findings confirm the existence of an Environmental Kuznets Curve in the case of China.

Bank fund reallocation and economic growth: Evidence from China

This paper examines bank fund reallocation and regional economic growth based on 1991–2005 provincial-level data of four state-owned commercial banks of China that practice fund reallocation nation-wide. We find no correlation between bank fund reallocation and regional economic growth or between bank loans and regional economic growth. We find, however, a positive association between bank deposits and growth. It appears economic growth leads financial development in China, not the other way around. Furthermore, as China’s market-oriented reforms deepen, fund reallocation and loans start to manifest positive effects on growth even though the banks are government owned.

Adaptive Efficiency and Financial Development in China: The Role of Contracts and Contractual Enforcement

The existing literature on China's economic development has focused so far more on economic reform, decentralization, and the clarification and protection of property rights. There is, however, inadequate attention being paid to the adaptive efficiency of economic actors, in general and to experimenting with informal and formal contractual arrangements, in particular. In this article, the authors document and analyze the informal contracts developed in Wenzhou, and three types of formal contractual arrangements increasingly used in China. The authors argue that both informal and formal contractual mechanisms play important roles in China's economic development. The general pattern appears to be that economic actors rely first on self-enforcing, informal contractual arrangements and later adopt more formal arrangements when these are feasible. The authors, by focusing their analysis on the development and adaptation of selected contractual arrangements, submit that the process of legal development in China is consistent with the notion of adaptive efficiency. The implication from the study is that the development of a formal contract regime will become increasingly important as economic development reaches a more advanced stage. When economic actors are able to rely on more formal contractual arrangements, more complex, riskier transactions with higher technological content will be pursued.

Adaptive Efficiency and Financial Development in China: The Role of Contracts and Contractual Enforcement

The existing literature on China’s economic development focuses more on economic reform, decentralization, and the clarification and protection of property rights. There is inadequate attention being paid to the adaptive efficiency of economic actors in general and in experimenting with informal and formal contractual arrangements in particular. In this article, Guanghua Yu and Hao Zhang document and analyze the informal contracts developed in Wenzhou and three formal contractual arrangements increasingly in wide use in China. They argue that both informal and formal contractual mechanisms play important roles in China’s economic development. The general pattern appears to be that economic actors rely on self-enforcing informal contractual arrangements first and adopt more formal arrangements when these are feasible. By focusing their analysis on the development and adaptation of selected contractual arrangements, they submit that the process of legal development in China is consistent with the notion of adaptive efficiency. The implication from their study is that the development of a formal contract regime will become more important as economic development reaches a more advanced stage. When economic actors are able to rely on more formal contractual arrangements, more complex, risky transactions with higher technological content will be pursued.

Growth-Financial Intermediation Nexus in China

This paper studies the relationship between economic growth and financial development in China during the post-1978 reform period. Recent studies, based on cross-country data, have found a positive association between these two variables. We find that while a positive correlation between growth and financial intermediation exists in China, the association is more apparent than real. The nonstate sector, which contributed most to China's remarkable growth during this period, did not use the domestic financial system in any substantial way for financing. The same appears to be true for the faster-growing provinces. Compared to foreign investment, domestic private credit played a relatively small, although statistically significant, role in financing the nonstate sector and fast-growing provinces.